INTRODUCTION (FINA 4360)
What is so special about International Finance?
A couple of semesters ago a student asked me: "what is so special about international finance that we need a special class?" His question motivated a
brief answer from another student: "otherwise, the professor would not have a
job!"
The first student had a point in his question: a lot of the techniques and
concepts used in international financial markets are the same ones used in
domestic financial markets. For example, the same techniques used to value a
U.S. government bond are used to value a Japanese government bond. The
international financial market, however, has some features that are different
from the domestic financial market. This course identifies and studies these
unique features.
The economic and financial relations between countries have similar
characteristics to the relations between states within federal governments.
Countries, however, tend to have different economic and monetary policies. National economic policies introduce barriers to the movement of goods, labor, and capital. Monetary policies introduce different currencies. Then, barriers
to capital flows and exchange rates are unique features of the international
financial market.
Associated with the above mentioned distinctive international features we have
two specific international risks: country risk and currency risk.
These risks arise from the possibility of unexpected changes in national
economic policies and monetary policies, respectively. Since these risks are
specific to the international environment, there are specific tools and
techniques designed to deal with them. This course studies these specific
risks and the techniques used to minimize the impact of them in international
markets.
Besides studying exchange rates and the effects of national economic policies,
this course attempts to cover the basic principles, techniques and tools used
by firms to make decisions in an international context.
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